Wednesday, August 31, 2011

Poll Disaster For Obama: Job Approval On The Economy Plunges; Independents Abandon Ship – (www.businessinsider.com) President Barack Obama's approval rating on the economy dropped to a new low today — with the latest Gallup poll showing just 26 percent of Americans are happy with his handling on the economy. It was a drop of 11 percentage points since May, and down from 59 percent at the start of his presidency. A majority of voters have not approved of Obama's leadership on the issue since the middle of 2009. Most troubling for the his reelection chances, a majority of independent voters disapprove of Obama's handling of a broad swath of issues ranging from foreign affairs to job creation. Obama polls strongest on foreign affairs and terrorism — issues that are becoming less and less important in the 2012 campaign.

California July Revenue Missed Budget Forecast by 9.2%, State Agency Says - (www.bloomberg.com) California revenue fell short of budget estimates by $541 million or 9.2 percent last month, the first of the 2012 fiscal year, the state Finance Department reported. The data was in line with figures from Controller John Chiang, who said Aug. 9 that cash receipts for the month missed the forecast by $538.8 million. Chiang said the miss may mean further budget cuts are needed for fiscal 2012. Of the $541 million shortfall in the Finance Department calculation, $166 million was likely due mostly “to the timing of deposits,” according to the Finance Department bulletin. The amount included receipts from tribal gaming and regulatory fees. Chiang, a Democrat, warned of “drastic” cuts to universities, home health care and social programs if the trend continued. A series of “triggers” written into the most- populous state’s $86 billion general-fund budget would cut spending in those areas as well as libraries if revenue falls $1 billion short of plan. A $2 billion gap would mean a seven-day cut in the school year and an end to busing subsidies.

President Weighs Asking Panel for Stimulus Measures - (online.wsj.com) President Barack Obama is considering recommending that lawmakers on a deficit committee back new measures to stimulate the lagging economy, people familiar with White House discussions said Tuesday. The plan Mr. Obama is considering also would recommend the congressional committee come up with a package that reduces the federal budget deficit by much more that its mandate of $1.5 trillion over the next decade, a senior administration official said, through changes in the tax code and social safety-net programs. "There's no reason to stop at $1.5 trillion," the official said….. Mr. Obama's recommendations could complicate the committee's task because the stimulus measures, by increasing government spending and reducing revenue, would worsen the deficit in the short term. But Mr. Obama would recommend ways to offset those effects, and the whole package would still reduce the deficit over 10 years.

California home prices and sales fall in July - (www.latimes.com) Prices paid for California homes dipped last month as distressed properties continued to make up more than half of the market. The median price paid for new and resale houses and condominiums statewide last month was $252,000, down 0.4% from June, and down 6% from July a year ago, real estate data provider DataQuick said. The state’s median — the point at which half the homes sold for more and half for less — has fallen year-over-year for 10 consecutive months. The median’s bottom for the current real estate cycle was $221,000 in April 2009, and the peak was $484,000 in early 2007. An estimated 34,695 houses and condos were sold last month. That was down 11% from June, and down 1.4% from July 2010. A decline from June to July is normal for the season. Of the existing homes sold last month, 34.6% had been foreclosed on during the past year. That was down from a revised 35.1% in June and down from 35.2% in July a year ago. The all-time high was in February 2009 at 58.5%. Short sales –- transactions in which the sale price fell short of what was owed on the property -– made up an estimated 17.3% of resales last month. That was down from 17.4% in June and down from 18.6% a year earlier.

Tuesday, August 30, 2011

Decade of Fiscal Stimulus Yields Nothing but Debt - (www.bloomberg.com) When George W. Bush took up residence in the White House in January 2001, total U.S. debt stood at $5.95 trillion. Last week it was $14.3 trillion, with $2.4 trillion freshly authorized by Congress Tuesday. Ten years and $8.35 trillion later, what do we have to show for this decade of deficit spending? A glut of unoccupied homes, unemployment exceeding 9 percent, a stalled economy and a huge mountain of debt. Real gross domestic product growth averaged 1.6 percent from the first quarter of 2001 through the second quarter of 2011. It doesn’t sound like a very good trade-off. And now Keynesians are whining about discretionary spending cuts of $21 billion next year? That’s one-half of one percent. And it qualifies as a “cut” only in the fanciful world of government accounting. The Budget Control Act of 2011 will save $917 billion over 10 years relative to the Congressional Budget Office’s baseline. It leaves the tough work to a bipartisan congressional committee of 12, to be appointed by the leadership in each house. If this supercommittee fails to agree on a minimum of $1.2 trillion of additional savings over 10 years, automatic spending cuts -- evenly divided between defense and nondefense -- will kick in.

Extend and Pretend works only so long until it doesn't - (www.telegraph.co.uk) Eurogeddon is postponed again. Jean-Claude Trichet has saved civilization. There will not be a spiralling bond crisis in Italy and Spain in early August after all. An imminent disintegration of Europe’s financial system has been averted. On balance, this is good, though not optimal. (Lancing the boil immediately by organising an orderly German exit from EMU would be better: it would halt the Fisherite debt-deflation spiral in Club Med and clear the way for recovery.) Spanish 10-year yields dropped 85 points to 5.2pc, Italian yields fell 76 points to 5.32pc in the first hour or so of trading after last night’s announcement. Now for the hard part. Unless the ECB is willing to back up its new role as lender-of-last-resort with massive purchases of Italian and Spanish debt, it will inevitably be tested by markets. Weak hands will take advantage of rallies to offload holdings onto the ECB, i.e. onto eurozone taxpayers. Frankfurt will find itself underwater very quickly without a legal mandate or EU treaty authority.

Big access threat - (to the wealthy) seen in little beach pathway - (www.sfgate.com) In the beach town where California's surf industry first took root, where the loss of an epic break to a marina helped prompt the passage of the nation's most stringent coastal access laws, few imagined the city would go to such lengths to keep people off the beach. But in the minds of many coastal activists, Dana Point has emerged as ground zero in the battle between the public's right to its coast and rich homeowners who want to keep the soft-sand beaches to themselves. In the last year, this city enacted an emergency ordinance, assigned a beach monitor of sorts and even went to court — all in an effort to lock prior to sundown a pathway through a private neighborhood with multi-million dollar mansions. "It's kind of come full circle with this," said resident Rick Erkeneff, who has been surfing Strand Beach for 30 years. "It's one little beach accessway, but ... if they can do this, any city can put up gates and limit the hours."

A Second Recession Could Be Much Worse Than the First - (www.nytimes.com) If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around. Given the tumult of the Great Recession, this may be hard to believe. But the economy is much weaker than it was at the outset of the last recession in December 2007, with most major measures of economic health — including jobs, incomes, output and industrial production — worse today than they were back then. And growth has been so weak that almost no ground has been recouped, even though a recovery technically started in June 2009. “It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession,” said Conrad DeQuadros, senior economist at RDQ Economics.

Monday, August 29, 2011

White House Press Secretary Claims "Unemployment Benefits Could Create Up To 1 Million Jobs" – (Mish at globaleconomicanalysis.blogspot.com) Real Clear Politics notes Unemployment Benefits Could Create Up To 1 Million Jobs. "I understand why extending unemployment insurance provides relief to people who need it, but how does that create jobs," Wall Street Journal's Laura Meckler asked Jay Carney at Wednesday's WH briefing. Carney responded: "Oh, uh, it is by, uh, I would expect a reporter from the Wall Street Journal would know this as part of the entrance exam." "There are few other ways that can directly put money into the economy than applying unemployment insurance," Carney said. Carney answers the question: "It is one of the most direct ways to infuse money directly into the economy because people who are unemployed and obviously aren't running a paycheck are going to spend the money that they get. They're not going to save it, they're going to spend it. And with unemployment insurance, that way, the money goes directly back into the economy, dollar for dollar virtually."

Special interests gave millions to budget panel - (www.boston.com) The 12 lawmakers appointed to a new congressional supercommittee charged with tackling the nation's fiscal problems have received millions in contributions from special interests with a direct stake in potential cuts to federal programs, an Associated Press analysis of federal campaign data has found. The newly appointed members -- six Democrats and six Republicans -- have received more than $3 million total during the past five years in donations from political committees with ties to defense contractors, health care providers and labor unions. That money went to their re-election campaigns, according to AP's review. The congressional committee, created as part of the debt limit and deficit reduction agreement enacted last week, is charged with cutting more than $1 trillion from the budget during the coming decade. If the committee doesn't decide on cuts by late November -- or if Congress votes down the committee's recommendations -- spending triggers would automatically cut billions of dollars from politically delicate areas like Medicare and the Pentagon.

On mortgage rates, Obama wants proposal for how government can keep big role - (www.washingtonpost.com) President Obama has directed a small team of advisers to develop a proposal that would keep the government playing a major role in the nation’s mortgage market, extending a federal loan subsidy for most home buyers, according to people familiar with the matter. The decision follows the advice of his senior economic and housing advisers, who favor maintaining the government’s role as an insurer of mortgages for most borrowers. The approach could even preserve Fannie Mae and Freddie Mac, the mortgage finance giants owned by the government, although under different names and with significant new constraints, said people knowledgeable about the discussions. A decision to preserve a major government role would mark a big milestone in the effort to craft a new housing policy from the wreckage of the mortgage meltdown and could mean a larger part for Fannie and Freddie than administration officials had signaled. In a statement, the White House said it is premature to say that senior officials have agreed on any of the three main options outlined earlier this year in an administration white paper on reforming the housing finance system.

Debt in Europe Fuels a Bond Debate - (www.nytimes.com) The Germans want to bury it. The French say it is a nonstarter. But the idea that the only way to contain the sovereign debt crisis is for Europe to issue bonds backed by all the nations of the euro zone will not go away. President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are scheduled to meet in Paris on Tuesday but have vowed to avoid the issue of euro bonds altogether. Nonetheless, a number of analysts say that eventually they may have no choice if they want to keep Europe’s currency union from falling apart. The euro bond concept is gaining traction among economists and other outside experts like George Soros, the billionaire investor, as a way of preventing borrowing costs for Italy and Spain from rising so much that the countries become insolvent, an event that could destroy the common currency. Debt issued and backed by all 17 members of the euro zone, euro bond proponents say, would be regarded as ultrasafe by investors and could rival the market for United States Treasury securities. The weaker euro members would benefit from the good standing of countries like Germany or Finland and pay lower interest rates to borrow than if left to face investors on their own.

A three-bedroom house rents for the same price as a small apartment in Los Angeles, 70 miles to the south. So it is hardly shocking that the number of renters here who use the federal Section 8 housing subsidy has more than doubled in the last decade, to roughly 3,500, at a time when housing values have crumbled at the exurban fringe, driving prices even lower. The once-booming town, like hundreds of others at the edge of major metropolitan areas across the country, is also facing stark changes in its demographic mix, going in a few decades from a small, overwhelmingly white city to a much larger, ethnically diverse one where whites make up a third of the population. Fault lines have opened, with some residents worrying that neighborhoods are inundated with crime, and others seeing racism. Mayor R. Rex Parris has contended for years that the area has been treated as a “dumping ground” for the poor of Los Angeles County. He has repeatedly said that Lancaster should be “waging a war” against the Section 8 program, which provides housing vouchers to low-income families, because there are disproportionately more recipients living in the area than in the rest of the county. It is a “problem that is crushing our community,” he said.

Govt Plans to Rent Houses - Rents to Drop Like a Ton of Bricks? - (www.libertadme.com) The Obama administration may turn thousands of government-owned foreclosures into rental properties to help boost falling home prices. The Federal Housing Finance Agency said Wednesday it is seeking input from investors on how to rent homes owned by government-controlled mortgage companies Fannie Mae and Freddie Mac and the Federal Housing Administration. The U.S. government rescued Fannie and Freddie in September 2008 and has funded them since the financial crisis. The mortgage giants own or guarantee about half of the nation’s mortgages and nearly all new mortgages. At the end of last month, the government owned roughly 248,000 foreclosed homes, officials said. About 70,000 of those are listed for sale. But officials expect the number of foreclosures to soar in the coming months. Many foreclosures have been stalled so attorneys general and federal regulators can investigate whether lenders cut corners and improperly handled thousands of cases. Once a settlement is finalized, foreclosures are expected to pick up again and further depress home prices.

The major figures avoid any responsibility for mortgage mess - (www.bloomberg.com) During the trial, the prosecutors argued that Townsend had defrauded the mortgage lenders -- including Countrywide Bank, Fremont Investment & Loan and Washington Mutual Bank -- by failing to disclose his arrangements with the nominee buyers. Executives from these lenders testified about their strict underwriting policies on mortgage loans. On cross-examination, I tried to point out that the lenders, banking on short-term profits, had encouraged people such as Townsend to bring them more and more loans, regardless of the borrowers’ ability to repay, and then sold their bad loans to Wall Street. These very lenders had been advertising “liar loans” with “no income verification required.” In a rare unscripted moment, one nominee buyer (who was a cooperating government witness), said the lending banks “just feel your pulse and see if your heart is beating and give you a loan.” I tried to convince the judge that the jury needed to know the truth about the lenders in order to determine whether Townsend had had any intent to defraud and whether he had made any material misrepresentations. But the judge accepted the federal prosecutors’ argument that the sins of the lenders were “irrelevant,” and that if such evidence were introduced at trial, there would be a risk of “jury nullification” -- that is, the jury might be tempted to acquit the defendants because others not on trial were more culpable. No evidence or argument about the corrupt practices of the lenders was allowed.

CA tax revenue plummets in July, raising fear of trigger cuts - (www.latimes.com) California's tax revenue plummeted in July, missing expectations by nearly $539 million and raising fears that deep education cuts will be needed to keep the state budget balanced. The bad news, announced Tuesday, came less than two months after Gov. Jerry Brown and state lawmakers patched together a budget on the assumption that a budding economic recovery would produce a $4-billion revenue windfall. Those hopes are now fading. The plunge occurred before the recent Wall Street gyrations that wiped away many of the year's stock-market gains. If the economy remains sluggish and the $4 billion does not materialize, cuts in public schools, universities, libraries, child care, and services for the elderly and frail will automatically take effect.

Bankers control our govts and are robbing us blind - (www.libertadme.com) On Tuesday night, unrest spread to cities including Manchester, Salford, Liverpool, Nottingham and Birmingham. Three men aged 31, 30 and 21 died when they were hit by a car in Birmingham. Mr Cameron, speaking after a meeting of the government’s Cobra emergency committee, said police had the legal backing to use any tactics necessary to bring the situation under control, including using baton rounds. He said: “This continued violence is simply not acceptable, and it will be stopped. We will not put up with this in our country. We will not allow a culture of fear to exist on our streets.” This is what happens when austerity hits a country due to banker inflicted losses… Jobs are lost, unemployment goes up, savings are destroyed and the currency takes the brunt of the hit; all to save a few rich bankers @ the expense of the formerly free citizens of a nation. This happened world-wide. Expect more riots as food prices go up, while everything you own/have goes down in value. In particular RE and currency savings…

Saturday, August 27, 2011

Spanish towns face funding crisis, rack up debts - (finance.yahoo.com) In this hillside town, topped by a medieval castle and surrounded by olive groves, the 120 municipal workers haven't been paid since May. Police have new orders not to use their patrol cars unless they get word of a traffic accident or a crime in progress. The town pool is closed for the summer despite temperatures over 104 (40 Celsius) in the shade. Fees for the public day-care center have doubled. Water bills will soon go up 33 percent and local business owners are seething over euro9 million ($12.7 million) in unpaid bills owed by the town hall, much of it to them. Spain's 8,115 municipalities are being hit by a crushing revenue hangover from a nearly two-decade building boom that went bust in 2008. Officials in Moratalla believe they are the first in Spain to publicly declare their town is on the verge of going broke -- and that the only way out is an unprecedented program of drastically reducing services while boosting local taxes and fees in an austerity drive that could last eight years. Moratalla and its mammoth debt "are the mirror image of a lot of towns" that have not yet fully admitted the extent of their dire financial circumstances, said Deputy Mayor Juan Soria. "These are hard measures, but they're necessary and I think we have to reinvent ourselves because we've lived beyond our means and we have to lower expectations."

Bond Brush Fires Spreading in Europe - (www.nytimes.com) HOW many fires can one central bank deal with? The European Central Bank this week began to buy Spanish and Italian government bonds, and yields on such bonds immediately fell by more than a percentage point. But market pressure shifted immediately to France. For France, the rise in yields must have come as a shock. At the end of last week, Standard & Poor’s had gone out of its way to declare that the country deserved a Triple-A rating, and this was at the same time it was taking that rating away from the United States. As soon as the French bond yields began to rise, rumors appeared that major French banks might be in trouble because of their holdings of government, or sovereign, debt. The banks insisted they were fine. The accompanying charts show the trend in yield spreads between 10-year government bonds issued by Germany, by far the largest and strongest country in the euro zone, and the four other largest countries that share the common currency.

Europe short-selling ban reveals divisions - (www.reuters.com) A piecemeal ban on short-selling of financial stocks in Europe sparked a rush of alternative proposals from countries and regulators Friday, while stronger bank shares pulled Europe's stocks higher. After a week of wild swings on European markets on rumors about the health and funding needs of indebted governments and some of their major banks, France, Italy, Spain and Belgium imposed short-selling bans, which varied according to country. Britain, the Netherlands and Austria said they saw no need for action, while Germany said it would instead push for a Europe-wide ban on so-called naked short-selling. The European Commission said a European framework would be more effective, and the chairman of the European Securities and Markets Authority urged policy makers to adopt a plan for bloc-wide rules on short selling "as quickly as possible." Short-selling is the process through which an investor borrows shares and sells them on the expectation their price will fall and they can be bought back at a lower price.

'Junk' Bonds Point to Recession - (online.wsj.com) Investors are pricing a recession into the value of high-yield bonds, a dramatic turn of fortune for securities that had been market darlings over the two years after the financial crisis. Following the Federal Reserve's dim outlook on the U.S. economy, investors have pushed risk premiums on high-yield, or "junk," debt in the secondary market to an average of 7.39 percentage points above comparable Treasury yields. "Now that we are in the 700- to 750-basis-points range, the market is pricing in a decent chance of a recession," said Michael Anderson, a high-yield strategist at Citigroup. By way of comparison, during the previous recession in 2001, risk premiums ranged between eight and 10 percentage points until early 2003, when lower rates helped more money flow into system. During the downturn in 1990-91, these premiums were in the 7 to 10 percentage points range. Risk premiums are the added yield investors demand to compensate for the additional risk in owning corporate bonds instead of benchmark Treasurys. The premium, or spread, is measured in basis points, or hundredths of a percentage point. To be sure, the health of companies with speculative-grade ratings improved markedly since 2009, so much so that 45 of them are pegged to cross over to investment grade. Robust investor demand, low cost of borrowing and belt-tightening have made companies leaner and fiscally stronger.

The Beginning Of The Endgame - (www.businessinsider.com) Greed and politics bring the financial system down. “‘The lesson of history, then, is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits. Just as an individual can go bankrupt no matter how rich she starts out, a financial system can collapse under the pressure of greed, politics, and profits no matter how well regulated it seems to be. Technology has changed, the height of humans has changed, and fashions have changed. ‘Yet the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant. No careful reader of Friedman and Schwartz will be surprised by this lesson about the ability of governments to mismanage financial markets, a key theme of their analysis. ‘As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubble and last for a surprisingly long time. But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

Friday, August 26, 2011

Illinois Budget Doesn’t Address Pension Payment Backlog, Moody’s Says - (www.bloomberg.com) The Illinois fiscal 2012 budget doesn’t address the state’s “sizeable backlog of unpaid bills and an unsustainable ascent” in spending for pension benefits, Moody’s Investors Service said in a report. The increase in state corporate and individual income tax- rates that took effect in January will contain growth in total liabilities of almost $120 billion, and the budget ends a practice of issuing bonds to pay current-year expenses, Moody’s said in a “special comment” yesterday. Still, the tax increases are a short-term solution because the rates decrease in 2015, leaving the state with a “significant funding burden” to meet its unfunded pension liability of about $80 billion and the likelihood that late payments to vendors will persist, Moody’s said. “The state may be able to use increased tax revenue to chip away at its large balance of past-due budgetary payment obligations, but it has not adopted a comprehensive plan to do so,” the company said. Democratic Governor Pat Quinn’s office declined comment on the report, Kelly Kraft, the governor’s budget spokeswoman, said in an e-mail.

Postal Service proposes cutting 120,000 jobs, pulling out of health-care plan - (www.bloomberg.com) The financially strapped U.S. Postal Service is proposing to cut its workforce by 20 percent and to withdraw from the federal health and retirement plans because it believes it could provide benefits at a lower cost. The layoffs would be achieved in part by breaking labor agreements, a proposal that drew swift fire from postal unions. The plan would require congressional approval but, if successful, could be precedent-setting, with possible ripple effects throughout government. It would also deliver a major blow to the nation’s labor movement. In a notice informing employees of its proposals — with the headline “Financial crisis calls for significant actions” — the Postal Service said, “We will be insolvent next month due to significant declines in mail volume and retiree health benefit pre-funding costs imposed by Congress.”

U.S. mood at 31-year low - (www.marketwatch.com) The August reading of consumer sentiment slumped to its worst level since 1980 — which means, of course, that it was worse than at any time during what’s been dubbed the Great Recession. There’s lots not to like, whether it’s the slumping stock market (shown in red), high unemployment, a putrid housing market, and the squabbling in Washington D.C. The Federal Reserve was clearly swayed: On Tuesday the central bank pledged to keep interest rates low for two years.

EU Regulators Ban Short Selling in Some Countries - (www.cnbc.com) The European Union's financial market regulator ESMA said on Thursday that Belgium, France, Italy and Spain would announce new bans on short-selling or short positions. It said the measures would take effect from Aug. 12 and had been aligned as far as possible. The ESMA also said it will take a firm stance against any short-sellers who are found spreading rumors in the market.

Italy eyes tax hikes as cabinet meets on crisis - (www.reuters.com) The austerity package set to be adopted by the Italian government on Friday contains provisions for a levy on incomes over 90,000 euros and higher retirement ages for women in the private sector, government sources said. It will also increase the tax rate on income earned from financial investments, excluding government bonds, to 20 percent from a previous level of 12.5 percent, a source with knowledge of the draft plans said. One government source said a so-called "solidarity tax" would be set at 5 percent for incomes over 90,000 euros and at 10 percent for incomes over 150,000 euros, confirming a report in business daily Il Sole 24 Ore. A separate source said the package would also bring forward planned staged increases in the retirement age for women in the private sector to start from 2015 from a previously planned 2020.

"The increase in the pension age for women in the private sector will begin from 2015 instead of in 2020 but the rate of increase will remain the same," the source said.